The 57th GST Council meet focuses on process reforms to boost business confidence. The council proposed changes to refunds under the inverted duty structure to improve working-capital efficiency. These steps help sectors like textiles and pharmaceuticals. By easing input tax credit restrictions, the government aims to support growth and exports.
The GST Council also addressed sector-specific concerns through a more pragmatic lens
As India continues to strengthen its position as a global manufacturing and services hub, GST has come to be a key enabler of investment, economic growth and a tool to enhance India's global competitiveness. The proposals of the GST Council are reflective of this evolution, including a stronger focus on process reforms.
To that end, a notable feature of the proposed reforms is the emphasis on improving working-capital efficiency, through the proposed changes to refunds under the inverted duty structure. While rate rationalisation has addressed inversion in several sectors, businesses operating in sectors where inversion persists continue to carry substantial unutilised credits. The exclusion of input services and capital goods from refund computations often results in significant amounts of working capital remaining trapped within the tax system.
Proposing to extend refund eligibility to input services and gradually incorporating capital goods can substantially improve liquidity for businesses that continue to face genuine inversion. For sectors such as FMCG, textiles, pharmaceuticals, packaging and several other manufacturing industries, the impact could be meaningful. The reform has the potential to release productive capital back into the economy, allowing businesses to reinvest in expansion, technology and employment generation.
The proposed easing of input tax credit restrictions reflects a similar philosophy. GST was designed to operate as a tax on final consumption rather than a tax on business inputs. Wherever legitimate business expenditure results in blocked credits, taxes tend to become embedded within costs, weakening competitiveness and impacting commercial decisions. Rationalising restrictions relating to input tax credits on motor vehicles, leasing, repairs, insurance, catering and telecommunications infrastructure would therefore move the framework closer to the foundational design principles of GST.
From an export competitiveness perspective, the proposed changes assume even greater significance. India's services exports now extend beyond traditional IT and business process outsourcing into high-value engineering, testing, repair, processing and specialised technical services. However, certain place-of-supply provisions have prevented genuine cross-border transactions from qualifying as exports despite services being provided to overseas customers. Aligning the treatment of such transactions with broader export principles would improve tax neutrality and strengthen India's attractiveness as a global services delivery destination.
Similarly, recognising supplies made by Indian entities to their overseas establishments as exports and aligning foreign exchange conditions with RBI-permitted modes of receipt would remove long-standing friction points faced by multinational businesses operating through integrated global delivery models.
The proposed expansion of zero-rating provisions is equally noteworthy. Extending zero-rating to transactions involving delivery into SEZs and FTWZs for storage, processing or onward supply can strengthen India's position as a regional manufacturing and logistics platform while reducing instances of tax cascading and stranded credits.
The Council also has addressed sector-specific concerns through a more pragmatic lens. The proposed exemption for concession fees under Toll-Operate-Transfer arrangements responds to a long-standing issue impacting infrastructure projects and can improve project economics for highway operators. Similarly, the clarifications and rationalisation measures proposed for banking, NBFC, shipping, mobility and logistics sectors are expected to reduce interpretational disputes, improve tax certainty and ease compliance burdens.
Procedural reforms are an equally important part of this agenda. Easier, system-assisted registration and automated refund processing can reduce taxpayer-department interface, improve predictability and accelerate access to working capital, making day-to-day GST compliance more efficient and business-friendly.
The proposals aimed at improving certainty and predictability in GST administration also merit attention. Measures to curb routine interventions in the movement of goods reflect a shift towards intelligence-led enforcement. Physical inspections would be undertaken only on specific intelligence with prior approval from a Joint Commissioner and would generally be limited to the origin and destination States. This could significantly reduce transit-related disruptions for businesses while retaining system-based verification and compliance checks. Further, the proposed GST registration relaxations for e-commerce sellers can lower entry barriers and support wider participation in digital commerce.
Alongside these, the focus on dispute resolution assumes particular significance. Reducing interpretational ambiguities through targeted clarifications and creating a more efficient framework for resolution of disputes can help contain prolonged litigation, lower compliance costs and provide businesses with greater confidence in managing tax risks. The proposed changes relating to prosecution further reinforce this direction.
Viewed collectively, the recommendations signal the continued evolution of GST into a more mature and business-oriented tax regime. The focus on improving capital efficiency, strengthening export competitiveness, rationalising sector-specific issues, enhancing dispute resolution, simplifying registration and refund processes and fostering a more balanced compliance framework is aligned with India's broader ambition of becoming a global manufacturing and services hub. If implemented effectively, these measures can further strengthen GST as a catalyst for investment, growth and global competitiveness.
The writers are Tax Partners, EY India; Hitika Munjal, Tax Professional, EY India also contributed to the article.